Sustainability has become a hot topic in the corporate board rooms across the globe in the past year. The World Economic Forum held a virtual forum for business leaders to determine a set of Stakeholder Capitalism Metrics – universal, comparable disclosures that focused on people, planet, prosperity and governance on which companies can report, regardless of industry or region. This was held in January 2020 with a direct result of a consultant paper “Toward Common Metrics and Consistent Reporting of Sustainable Value Creation being produced and discussed going forward.
This consultative work continued with a White paper in September 2021, “Measuring Stakeholder Capitalism Towards Common Metrics and Consistent Reporting of Sustainable Value Creation.
Recently, this had a following on with a beneficial further white paper in March 2021 called “A Leapfrog Moment for China in ESG Reporting“, which provides all involved or interested in Sustainability to refer to. I will be coming back to this particular report at another time. What caught my attention was singling out China and how many of their leading organizations are undertaking sustainability into their corporate goals, plans and operations.
Within these three documents, you gain a handy set of insights to build a sustainable pathway.
These common metrics for Sustainability reporting were developed in collaboration with the “big four” global accounting firms of Deloitte, EY, KPMG and PwC to identify a set of universal, material ESG metrics and recommended disclosures that could reflect in the mainstream annual reports of companies consistently.
I am mostly quoting from the September 2020 white paper for this summary view.
The need today is to focus on Sustainability in a finite world.
We need to achieve far better consistency in Sustainability reporting as many of the reports you work through are attractively presented but lack the real depth I feel this reporting needs.
- The need to align corporate values and strategies with the UN’s Sustainable Development Goals (SDGs), to better serve society and within the business, the emerging consensus among companies is that long-term value is most effectively created by serving the interests of all stakeholders.
- Setting broader, wider goals towards creating more prosperous, fulfilled societies and a more sustainable relationship with our planet make real sense when our world is in a climate crisis. The aim is to hold companies accountable to their stakeholders and increase transparency will be more viable – and valuable – in the long term.
What I strongly relate to within these reports, I was drawn to the opening remarks of one of the reports:
“galvanising the capacity of the private sector to harness the innovative, creative power of individuals and teams to generate long-term value for shareholders, for all members of society and for the planet we share. It is an idea whose time has come.”
The work being undertaken is to define common metrics that are based on existing standards, with the near-term objectives of accelerating convergence among the leading private standard-setters and bringing greater
comparability and consistency to the reporting of ESG disclosures.
To quote further from the September White Paper.
“The recommended metrics are organized under four pillars that are aligned with the SDGs and principal ESG domains: Principles of Governance, Planet, People and Prosperity. They are drawn wherever possible from existing standards and disclosures to amplify the rigorous work already done by standard‑setters rather than reinvent the wheel.
The metrics have been selected for their universality across industries and business models, but the intention is not to replace relevant sector‑ and company‑specific indicators. Companies are encouraged to report against as many of the core and expanded metrics as they find material and appropriate based on a “disclose or explain” approach.
The concluding remarks in this White Paper opening summary were “by reporting on these recommended metrics in its mainstream report – and integrating them into governance, business strategy and performance management – a company demonstrates to its shareholders and stakeholders alike that it diligently weighs all pertinent risks and opportunities in running its business”.
Also remarked… “beyond this, those corporations that align their goals to the long‑term goals of society, as articulated in the SDGs, are the most likely to create long‑term sustainable value while driving positive outcomes for business, the economy, society and the planet. This is the true definition of stakeholder capitalism”.
The process has accumulated into a Core set of metrics and expanded ones to advance communicating sustainable value creation
In the white paper issued in September 2020, the result of this process there has emerged 21 core and 34 expanded metrics and disclosures, which the project commends to both IBC members and non‑IBC companies for adoption:
– Core metrics: A set of 21 more established or critically important metrics and disclosures. These are primarily quantitative metrics for which information is already being reported by many firms (albeit often in different formats) or obtained with reasonable effort. They focus primarily on activities within an organization’s own boundaries.
– Expanded metrics: A set of 34 metrics and disclosures that tend to be less well‑established in existing practice and standards and have a wider value chain scope or convey impact in a more sophisticated or tangible way, such as in monetary terms. They represent a more advanced way of measuring and communicating sustainable value creation.
This is an exciting initiative that has formed a thriving ecosystem.
The conclusions within the September 2020 White Pater were “The initiative has won strong support from the 160‑plus companies and investors canvassed during the project’s consultation phase. None of this could have been achieved without the outstanding contributions of the Big Four accountancy firms – Deloitte, EY, KPMG and PwC – under the chairmanship of the IBC by Bank of America’s CEO, Brian Moynihan.
The ecosystem is buzzing with activity. The EU is revising its Non‑Financial Reporting Directive, which seems likely to lead to more mandatory reporting on sustainability. IOSCO is looking at how to harmonize financial and sustainability reporting. The IFRS Foundation will soon begin formal consultations into broadening its mandate to embrace sustainability issues. The five principal framework- and standard‑setters (CDP, CDSB, GRI, IIRC and SASB) have, for the first time, issued a shared statement of intent to work – with the Forum/IBC initiative and other interested parties.
The momentum is building out in 2021
So there is a significant mover towards a comprehensive corporate reporting system that integrates sustainability reporting with mainstream financial disclosures.
Engaging in this process will enable companies to report in a more consistent and comparable way
on their shared value creation, building trust among stakeholders and shareholders, and demonstrating that stakeholder capitalism can be a force for good both in society and for the planet.
My motivation builds on exploring Sustainability,
I will continue to focus on Sustainability from this ecosystem and future innovating perspective in future posts and insights. I was clear from this ongoing work that the bigger picture needs factoring in; these are two: natures capital, climate and decarbonization and outlines some initial thoughts in this recent post “Looking beyond ESG”.
Certainly, within the work undertaken under the World Economic Forum and the combined consultative power of Deloitte, EY, KPMG and PwC, the rapid acceleration to a common approach does give a real opportunity to have available a set of decision‑useful sustainability metrics that could form the foundation of a market‑based, global set of ESG accounting standards.
Clearly, one post due will be on a brief outline of the four pillars for the Principles of Governance, Planet, People and Prosperity, and that fascinating glimpse into China’s approach as we move towards truly sustainable value creation. It is an exciting topic to understand and build out thinking for me.